On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction over the obligation of small businesses to file BOI Reports under the Corporate Transparency Act (CTA). The ruling comes after the plaintiffs in Texas Top Cop Shop, Inc., et al. v. Garland, et al.,[i] filed a lawsuit challenging the constitutionality of the CTA and Reporting Rule on various grounds. Judge Amos L. Mazzant, in a Memorandum Opinion and Order, granted plaintiffs’ motion for a preliminary injunction on the grounds that the “CTA is likely unconstitutional as outside of Congress’s power.” It is important to note that the injunction is a preliminary injunction as opposed to a permanent injunction, which leaves room for the mandates under the CTA to be reinstated.
On December 5, 2024, the government filed an Appeal to the Fifth Circuit Court of Appeals of the District Court’s decision. As the original January 1, 2025, filing deadline approaches, the hearing on the Appeal may be expedited to lift the short-term enjoinment of the CTA. The Financial Crimes Enforcement Network (FinCEN) provided the following update:
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
What the Appeal Means for Small Businesses Affected by the CTA.
While the CTA’s reporting obligations have shifted to voluntary filings, it is important for impacted entities to prepare and gather any necessary information and documents to file BOI Reports if the injunction is lifted. Continuing to be prepared cannot be understated, as the CTA provides harsh penalties for failure to comply if the obligations are reinstated. There remains a possibility that an appellate court may stay the Court’s order pending an appeal. In the event a stay of the Order occurs, the mandates of the CTA will be back in full force. The attorneys at O’Reilly Rancilio P.C. will continue to monitor matters regarding the CTA and are available to counsel clients on reporting and compliance requirements. Please don’t hesitate to contact Charles E. Turnbull at cturnbull@orlaw.com or Arvin F. Zora at azora@orlaw.com if you have any questions.
[i] Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.).
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